Posts Tagged ‘Tax Breaks’

In Part I, we saw that the distribution of income and, especially, wealth in the U.S. is extremely inequitable, with the top 1% owning 42% of financial (nonhome) wealth, with the top .1% owning as much as the bottom 90% combined, and that the bottom 50% of the population owns essentially no wealth at all. As well, since total wealth in the U.S. is currently $81.5 trillion, average (not median–which is half above, half below) per capita wealth comes to over a quarter of a million dollars. Yet distribution of wealth is so lopsided that most people have almost no net worth.

We also saw that American workers–who have one of the highest average work weeks in the world, 47 hours–have seen their real wages decline nearly 10% since 1973, while productivity per hour worked increased by, on average, over 1.75% per year during the same period; compounded, that works out to an over 80% increase in productivity. So, American working people are producing far more than we did four decades ago, and are being paid less. To maintain the same average standard of living as in 1973, we should (assuming a 40-hour work week then) only be working 22 hours per week, had wage increases kept pace with productivity.

In Part II, we saw that working and “middle class” people (an increasingly quaint concept) pay higher taxes than the top 1%. There are two primary reasons for this: 1) Capital gains income is taxed at a far lower rate (15%)  than a good majority of earned (through work) income (with a rate of 28% starting at $37,000); and 2) Other taxes (sales, property, social security, gas, “sin”) hit average people, who spend almost all of their income, far harder than those in the top income brackets, who don’t. It works out that a single worker earning $10 an hour pays taxes amounting to roughly 40% of his or her income, while a nonworker in the top .1% only pays about 30%.

Eliminate that 10% difference in tax rates, and the average worker would have 10% more income–or could work 10% fewer hours to maintain his or her standard of living. Adding that to the 18 hours of work per week that should have been eliminated over the last four decades, and it means that the average work week should now only be 18 hours.

But the situation is even more extreme than that, for two reasons.

Wasted Taxes

The first is that a very large amount of tax money is either wasted or is spent on worse-than-useless things, things that increase human misery. Military spending is  at the forefront. U.S. military spending (not “defense spending”–the U.S. hasn’t fought a defensive war since World War II) came to approximately $600 billion in 2014. The next highest spender, China spent at most about one-third of that. (The estimate from the International Institute of Strategic Studies [IISS]; is $129 billion; the estimate of the Stockholm International Peace Research Institute [SIPRI] is $210 billion.) So, the U.S. military budget, taking SIPRI’s and IISS’s respectively, is either more than the next eight or ten countries combined. Given that the U.S. is under no military threat, that’s clearly excessive, an indication that the nation is ruled by fear and is under the thrall of, as Dwight Eisenhower put it, the “military-industrial complex.”

If the U.S. were to reduce its level of spending to that of China (taking the high estimate of China’s military spending), it would result in a savings of $400 billion per year, that is a savings of approximately $1,200 for every man, woman, and child in the country, money we could spend on our own needs were taxes to be reduced accordingly.

Then there’s debt financing, which ran to $430 billion in 2014, with about half of that due to military and military-related spending. Add to that another $60 billion or so in veterans spending and roughly $50 billion black budget spending — documents released by Ed Snowden placed it at $52.8 billion in 2012 — and excessive military spending, past (debt interest) and present, came to over $700 billion in 2014.

Other federal, state, and local spending is also wasteful and often harmful. The most obvious example is the “war on drugs” (WOD). Over the last four decades the WOD has cost Americans over $1 trillion and currently costs between $50 and $70 billion per year.

This in large part — along with sheer mean-spiritedness — results in the U.S. having by far the highest rate of incarceration in the world. There are approximately 2.2 million adults incarcerated in the U.S. (add in those under 18 and the figure is considerably higher), with the average cost of incarceration running to over $30,000 per year, for a total of approximately $65 billion annually. This works out to an incarceration rate of roughly 700 people out of every 100,000.  (This is somewhat misleading though, as this considers the number of adults incarcerated as a percentage of total population; considering only the adult population, the rate is just over 1,000 per 100,000.) In other words, the U.S. has by far the highest incarceration rate in the world. In comparison, Finland incarcerates 58 people per 100,000; Sweden 60 per 100,000; the UK 148 per 100,000; and even China only incarcerates 250 people per 100,000 population. If the U.S. reduced its incarceration rate to match that of the UK, it would save over $45 billion annually, money that could be spent on human needs rather than needlessly keeping people locked in cages.

Still, are mass incarceration and the “war on drugs” keeping us safe? Hardly. The U.S. has the highest murder rate of all of the industrialized countries. The U.S. also has the fourth highest rape rate.

Subsidies and Tax Breaks

Tax breaks (“tax expenditures” in bureaucratese), which go overwhelmingly to corporations and the wealthy, will be approximately $1.22 trillion in 2015. This exceeds the $1.11 trillion in federal “discretionary spending” (primarily military spending), and equates to nearly $4,000 per American–though average Americans receive a very small percentage of these breaks. Such tax breaks in part explain why, as we discussed in Part I,  low-income workers pay higher taxes (as a percent of income) than the very rich. And of corporate tax breaks 56% go to just four industries: agriculture, utilities, telecommunications, and fossil fuels.

Then there are direct subsidies. The Cato Institute estimates that the federal government provides $10 billion to $30 billion in direct payments to agribusinesses annually, and another $5 billion providing such things as crop insurance and “marketing support.” Taking the average of $20 billion in direct cash subsidies, it works out that the average citizen is subsidizing agribusiness to the tune of $65 annually in direct cash payments. Make it $75 if you add in subsidized crop insurance and “marketing support.” That’s relative chicken feed, but it’s grating to pay taxes to support profit-making businesses.

There are also massive direct subsidies to the energy industries. Cato reports a taxpayer-funded research program costing $646 million annually “into coal, oil, and natural gas technologies” and another $695 million spent annually on nuclear research. Then there are boondoggles such as the Yucca Mountain nuclear waste repository in Nevada, which was authorized in 1987, was supposed to go into operation in 1998, which thus far has cost taxpayers $10 billion — and which is still not storing a single ounce of nuclear waste.

There are other subsidies and other boondoggles, but why go on? This is a blog post, not a book.

Add all of the money wasted on unnecessary military spending, the war on drugs, unnecessary mass incarceration, and direct subsidies to industries — and there’s much other wasteful government spending — and on a per capita basis wasteful spending in these areas comes to over $1,500 annually. Add in tax subsidies to corporations and the wealthy, and the total rises to roughly $5,000 per capita (money that comes from excess taxation of low- and middle-income working people, and from government borrowing).

Then there are the great and inherent inefficiencies in capitalism, something we’ll consider in the concluding post of this series.






cover of Culture Wars by Marie Castle(Excerpted from Chapter 7 of Culture Wars: The Threat to Your Family and Your Freedom, by Marie Alena Castle)


“When a religion is good, I conceive it will support itself; and when it does not support itself, and God does not care to support it—so that its
professors are obliged to call for help of a civil power—it is a sign, I apprehend, of its being a bad one.”

—Benjamin Franklin


Public frustration has, once again in a recurring political scenario, reached the “throw the bums out” level over government deficits and an economy in free fall. There is much agonizing, blaming, and demonizing over the need to cut spending and/or increase taxes, with little agreement on where and how to do it. Yet, one potential major source of revenue—tax exempt organizations—is seldom mentioned, much less acted upon. Over the years, as a political activist, I have had discussions about religious tax exemptions with many politicians. All understood the problem, even expressing eagerness to tax religious institutions and musing about ways to do it, but all concluded that (as one former U.S. senator admitted to me), “Anyone who told the truth about taxes could never get re-elected.” There certainly are many nonreligious aspects of our tax system that are questionable, but given our First Amendment’s religion clauses, we should not be paying higher taxes so religions benefit by paying nothing.

We need to hear the truth, and this is it. Death and taxes are not certain, only death is certain. Those who are classified as tax exempt and escape taxes are primarily religious, educational, and charitable nonprofits. For religious organizations, there is not only escape from taxation, but complete lack of financial accountability. Secular nonprofits have to file a financial report annually with the IRS; religious organizations do not. Generally (there are state-specific variations), religious organizations pay no state or federal income taxes, no sales, gas, car, or excise taxes, no user fees, no inheritance taxes, no taxes on investments, stocks, mutual funds and bonds, no capital gains taxes on the sale of property, and no property taxes to cover the cost of fire and police protection, libraries, and schools. Religious organizations don’t even have to verify to the IRS the donations taxpayers claim on their income tax forms. Related businesses, such as religious bookstores, biblical and creationist theme parks, schools, hospitals, fitness centers, recreational facilities, and campgrounds are tax exempt. (About the only things religious institutions have to pay taxes on are any completely unrelated commercial businesses they might own, such as shopping centers and hotels.) They receive these exemptions simply because they’re religious. There is no secular justification for these exemptions, and they compromise the economic wellbeing of everyone else.

No Good Deed Goes Unpunished

The law of unintended consequences never applied so well as it does to the decision to exempt religious institutions from taxation. These exemptions lead one to think that the cynical quip,“No good deed goes unpunished” has some truth in it. As our nation grew and state constitutions began to allow tax exemptions, churches received them, more or less as a charitable gesture, since in the early years of this country most churches were too small and poor to easily pay taxes.

As churches grew, exemptions were considered justified because churches dispensed charity, augmenting that of community poor houses and county poor farms. (The social safety net—Social Security, unemployment insurance, and later food stamps, Medicare and Medicaid—didn’t exist until the New Deal in the 1930s; so, the charitable work of churches was much more important in the 19th century than it is today.) But then, through bequests, business investments and gifts from wealthy donors, religious institutions began prospering immensely. With wealth came power and influence, and so, through political pressure, the exemptions grew and grew. Today almost nothing churches do can be taxed, even when they generate millions of dollars of income and return little or nothing of value to the community. What began with some justification now borders on being criminal.

How Did This Happen?

Efforts to bring this unfair situation under control are as old as the initial tax exemptions, which began in the 1830s. Numerous pieces of state and federal legislation have been introduced since then to end the preferential treatment of churches, but to no avail. In 1874, the issue had become such a matter of public concern that James Garfield (later President Garfield) addressed Congress on the matter. He said:

The divorce between Church and State ought to be absolute. It ought to be so absolute that no church property anywhere, in any state, or in the nation, should be exempt from equal taxation; for if you exempt the property of any church organization, to that extent you impose a tax upon the whole community.1

In 1875, President Ulysses S. Grant also addressed Congress. He came bearing a 900-foot-long petition with 35,000 signatures of people opposed to tax exemptions for religious institutions. He said:

I would also call your attention to the importance of correcting an evil that, if permitted to continue, will probably lead to great trouble in our land . . . it is the accumulation of vast amounts of untaxed church property. . . . In 1850, the church properties in the U.S., which paid no taxes, municipal or state, amounted to about $83 million. In 1860, the amount had doubled; in 1875, it is about $1 billion. By 1900, without check, it is safe to say this property will reach a sum exceeding $3 billion . . . so vast a sum, receiving all the protection and benefits of government without bearing its portion of the burdens and expenses of the same, will not be looked upon acquiescently by those who have to pay the taxes. . . . I would suggest the taxation of all property equally, whether church or corporation.2

There have been a number of such efforts in my state, Minnesota, to end religious tax exemptions; none of them have been successful. The situation here is fairly typical, so it’s worth considering.

In the 1970s, an amendment to Article X of the Minnesota Constitution passed by over 70 percent to allow taxing the business operations of churches. The amendment was supported by a coalition of business associations and labor unions. Despite the overwhelming popularity of this amendment, it has never been implemented.
In 1987, Minnesota Governor Rudy Perpich proposed eliminating the sales tax exemption of nonprofits and got nowhere. In 1988, Rep. Tom Osthoff sponsored a bill in the Minnesota legislature that, as reported in the Minneapolis Star Tribune, would have:

[R]emove(d) $4 billion in property tax exemptions, which would have raised $180 million and cut homestead taxes by an average of 7.3 percent statewide, according to a study by Minnesota House researchers. The bill would have taxed hospitals, nursing homes, nonprofit organizations other than churches and schools, civic centers, arenas, auditoriums, leased airport property, college property not used for education, and residential property owned by churches, educational institutions and governments. Church property was included in everything except possibly the civic centers, arenas, auditoriums and airport property. To no one’s surprise, the bill failed.3

And in 1989 I was involved in getting Article X implementation language into the tax bill. The bill was pulled at the last minute (according to my legislative contact) due to political pressure by religious institutions. Nothing of note has happened on the state level since then.

On the federal level, in 2011, U.S. Senator Charles Grassley, a Republican representing Iowa, opened a Senate Finance Committee investigation of the financial irregularities of several mega-ministries run by “prosperity gospel” televangelists. These preachers occasionally make the news by living over-the-top lavish lifestyles, with mansions, private jets, yachts, air-conditioned dog houses, and other luxuries. Grassley, although a religious-right supporter who shares the religious beliefs of his targets, has tried to stop these tax exemption abuses, but has succeeded only in publicizing their excesses, which is certainly a good thing in itself.

However, for reasons best known to himself he dropped financial inquiries into mega-churches in favor of supporting legislation that allows them to engage in political activity while retaining their tax exemptions.4 At the same time, he started going after nonprofit hospitals, whose tax exempt status is based on providing a certain amount of charity care. An October 15, 2011, news report by Tony Leys in the Des Moines Register detailed Grassley’s efforts and the effect on taxpayers when “nonprofits” profit from unjustified tax exemptions. Leys writes:

[M]ore than $1.9 billion worth of hospital property in Iowa is tax-exempt, state records show. If those hospitals were normal businesses they would pay more than $58 million in annual property taxes, which would help fix roads, hire teachers and keep police on the beat. The result: Everyone else pays higher taxes because of such exemptions.5

As for the free care, Leys adds:

[Iowa’s 46 nonprofit] hospitals made nearly $295 million after expenses, about three times the amount of free care provided to patients too poor to pay. Fifteen of the hospitals provided less than 1 percent of their overall expenses in free care to the poor. Only 11 hospitals provided free care equal to 2 percent or more of their expenses. . . . nonprofit foundations are required to spend 5 percent of their assets on charitable activities per year.

Churches, of course, are not required to spend anything on charity, despite the huge incomes of the larger churches. Any significant charity they provide is normally funded by the government under contract, and by other public entities such as the United Way.

The most serious obstacle to eliminating church and secular nonprofit tax exemptions has been the 1970 Supreme Court decision in Walz v. Tax Commission of the City of New York. The justices ruled 8 to 1 that exempting churches from taxation was a benevolently neutral accommodation—although neutrality by definition can be neither benevolent nor malevolent.

Part of the Walz decision was based on the assumption that churches do charitable work and contribute to American culture. But many do little or no charitable work, and of those that do, anything significant is often paid for by government grants and/or private foundations and civic organizations. Many businesses do more good (as anyone who has faced a car breakdown or plumbing disaster knows), but they are not tax exempt.

As for culture, the most notable contribution from religious organizations in recent decades has been a divisive culture war. While some churches may do some good, many of them do far more harm than good. Every chapter in this book exposes a body of theology-based laws that victimize all of us in some way, while causing damage that requires tax dollars to remedy. (To cite but one example, consider the costs of unwanted children resulting from restriction of both abortion and contraceptive availability.)
What is often overlooked about the Walz ruling is that it did not say (as many suppose) that churches must be tax exempt, only that they could not be denied tax exemption if secular nonprofits were exempt. States were free to tax or exempt all or none. The states chose to exempt all.

Because secular nonprofits want to keep their tax exemptions, religious organizations are no longer the sole beneficiaries of this unfair system, but they play a major part in keeping it going. They are, in fact, the primary movers in keeping the system in place. Although Walz v. Tax Commission did not say churches cannot be taxed, the ruling is often understood to mean that taxing churches violates the religious freedom clause of the First Amendment. If it did, we’d have a schizophrenic First Amendment that, on the one hand, prohibits an establishment of religion (so that no one is forced to carry these freeloaders) while, on the other hand, guaranteeing freedom of religion (so that everyone is forced to carry them). Such are the political contortions this nation struggles with to keep religious institutions fat and happy, regardless of the burden this places on everyone else, religious or not.

Property Taxes: We Pay More Because They Pay Nothing

Tax inequities show up most clearly and affect most people directly in real estate taxes. In every community, government provides certain services: fire and police protection, road and bridge repair and maintenance, street cleaning, emergency response, education and recreational facilities—all these and more if we are to have what we call civilization.
Local governments assess property taxes to cover these expenses, but only on some property. Those with a property tax exemption get all the benefits of a city’s services but pay nothing. That revenue shortfall is made up by the rest of us, who pay more. Of this group, owners of business and commercial real estate can pass their tax costs on to customers and clients. Homeowners and renters cannot. For them there is no way out. They must cover the shortfall created by the tax exempt while also paying higher prices to cover the taxes on business property. This can be especially hard on senior citizens, whose retirement income is usually far below their former income.

Given the difficulty of taxing churches, some proponents of tax fairness have suggested charging churches a service fee for the many city services they enjoy at taxpayer expense. Some cities have tried this, but the churches put up such a fight that the efforts have not succeeded. To their credit, there are religious organizations that, at least occasionally, voluntarily pay a fee to cover their use of public services. For example, in 1967, the minister of the First Universalist Church of Minneapolis wrote a lengthy editorial for the (then-named) Minneapolis Star pleading for his fellow religionists to reject church tax exemptions as a threat to their integrity and religious freedom. He detailed instances of church wealth that he considered unconscionable. Almost nothing came of his efforts.6

However, his views have received some support. The 1988 Star Tribune report on tax exemptions referred to earlier noted that Augsburg Publishing House (owned by the Lutheran church) donated about $325,000 between 1975 and 1988 to the City of Minneapolis for the services it received.7 Also, St. Olaf College and Carleton College in Northfield, Minnesota, donated about $20,000 a year for services, in addition to donating larger amounts for special projects, such as a hospital and an ice arena. I have heard of Unitarian-Universalist churches doing the same thing. These donations, of course, indicate the huge amount of money available to fund city services and lower everyone’s property taxes if all property was taxed.

How much lost revenue must homeowners and renters make up to cover the tax exemption shortfall? In Minnesota, for example, tax exempt property statewide is valued at $84 billion.8 In Minneapolis, one-fourth of the property is tax exempt; in St. Paul one-third is. (The difference is due to St. Paul being the state capital, and thus having many government buildings). This is probably typical among all the states.

Preacher Perks

The clergy even get tax exemptions just for being clergy. This goes back to 1954, when Cold War hysteria caused our elected officials to put religious bigotry in many forms into law as a barrier against “godless communism” (details in Chapter 9). The legislator who proposed the clergy exemption, Rep. Peter Mack Jr., a Democrat from Illinois, explained it this way:

Certainly, in these times when we are being threatened by a godless and antireligious world movement, we should correct this discrimination against certain ministers of the gospel who are carrying on such a courageous fight against this foe. Certainly this is not too much to do for these people who are caring for our spiritual welfare.9

There’s no discernable secular purpose in this rationale, since tax-exempt clergy could hardly affect the Soviet Union. This added tax exemption did, however, affect U.S. taxpayers, who had to make up for the lost revenue.

A former Episcopal priest, Dick Hewetson, reported on the clergy exemption in Freethought Today, the newspaper of the Freedom From Religion Foundation (FFRF):

I have an income tax break that most members of FFRF do not share. Because I receive a pension from the 11 years that I served as a clergyman, a portion of that income is not taxed. It is called my “housing and utility allowance.” It goes back to a tax law that allows clergy pay to be divided into two separate categories: salary plus housing and utility allowance. The latter amount is excluded from federal tax. It is not included on Form W-2 as taxable income (although it can show up, with an explanation, in Box 14 of the W-2). Wouldn’t you like it if your employer could divide your pay like this? Well, god is not on your side.

The tax code has been amended at least twice. In 1971 the Internal Revenue Services limited [tax exempt income of clergy to cover housing] to the “fair market rental value” of the furnished home, utilities included. Evidently, some god-fearing clergy were accepting housing and utility allowances above the amount they actually paid! . . . To add insult to injury, if clergy own homes, they can still deduct their real estate taxes and interest on their mortgage payments . . . Remember that the money they are paid for their home expenses is not part of th[eir] taxable income.

In the Oct. 11, 2006, New York Times, reporter Diana B. Henriques wrote: “The tax break is not available to the staff at secular nonprofit organizations whose scale and charitable aims [are comparable] . . . or to poorly paid inner-city teachers and day care workers who also serve their communities. The housing deduction is one of several tax breaks that leave extra money in the pockets of clergy members and their religious employers. Ministers of every faith are also exempt from income tax withholding and can opt out of Social Security. And every state but one exempts religious employers from paying state unemployment taxes–reducing the employers’ payroll expenses but also leaving their workers without unemployment benefits if they are laid off.”

A Vermont clergyman, Jay Sprout, wrote in the May 8, 2002, Christian Century: “The question this issue always raises for me is, what principle? The principle that ministers are entitled to a tax break available to no other taxpayers except, I believe, certain military personnel? I am not eager to pay more tax than the law requires and have received thousands of dollars of benefits, thanks to the housing tax break for clergy. But I have never understood why I should enjoy such a privilege or why church institutions should be so vigilant in their efforts to protect this tax advantage. Jesus was particularly critical of religious authorities and others who claimed special status in society. Can you imagine ‘the son of Man [who had] nowhere to lay his head’ living in a house worth $80,000 a year?”

. . . I am sure that you agree with me that this is a totally unfair situation. I have always said that I do not object to paying taxes. I do object to paying taxes in an unfair way. And this tax code is definitely unfair.

Now, getting back to the fact that I still get the break. Because I receive a pension from the church, any amount up to what I pay for rent and utilities is not considered taxable income. Don’t you wish you were in my shoes? Hey, it’s legal.10

What Hewetson didn’t mention was that this benefit allows clergy to buy several homes tax free. For example, a millionaire minister who bought a $408,638 second home at a lake in Tennessee got the clergy exemption on that in addition to his first home, courtesy of a favorable ruling by the U.S. Tax Court. Then there were the clergy housing allowances granted eight members (including five from the Robert Schuller family) of Robert Schuller’s Crystal Cathedral Ministries in California that amounted to an annual total benefit of $832,000. Congressional budget records show that the total cost to taxpayers for this largesse is about $500 million a year.


1. Stated as a congressman in 1874; Congressional Record, vol. 2, part 6, p. 5384.
2. Message to Congress, Dec. 7, 1875; Congressional Record, Vol. 4, part 7, p. 175.
3. “Taxing question of who’s exempt again faces state,” by Robert Franklin, Minneapolis Star Tribune, March 14, 1988.
4. “Grassley Withers Under Religious Heat” by Joseph L. Conn, Church & State, February 2011.
5. Tony Leys, “Hospitals avoid taxes despite little free care,” Des Moines Register, October 15, 2011.
6. “Taxes and Church Duty” by Rev. John Cummins, Minneapolis Star, March 6, 1967.
7. “Taxing question of who’s exempt again faces state,” by Robert Franklin, Minneapolis Star Tribune, March 14, 1988.
8. “Billions in value, zero in taxes,” by Chris Havens, Minneapolis Star Tribune, Feb. 6, 2011, p B1.
9. Quoted in Freethought Today, June–July 2011. p. 24.
10. “Ex-Priest Still Gets Special Dispensation from IRS” by Dick Hewetson (reprinted with permission), Freethought Today, April 2010, p.3.